German unemployment reaches record

PAUL WALLACE

Economics Editor

German unemployment jumped in January to an all-time high in the history of united Germany of more than 4 million. The unemployment rate for Western Germany also rose to an historic high.

The scale of the jobs crisis now besetting Germany is causing political heart-searching that is putting even more of a question mark over the beleaguered project for monetary union. This was inflamed by an interview given by a Bundesbank Council member, Reimut Jochimsen, in which he said the Maastricht Treaty allowed for postponement. But Wolfgang Schauble, a key adviser to Chancellor Kohl, said that delaying EMU could kill it.

In France, the central bank cut 15 basis points off the key intervention rate, which sets the floor for money-market rates, bringing it down to 3.90 per cent. The ceiling 5-10 day lending rate was left unchanged at 5.60 per cent.

A majority of economists expect the Bundesbank to cut its key floor discount rate by early spring. A quarter-point cut is already priced in by the markets.

Paul Mortimer-Lee, chief economist at Paribas Markets, forecasts a cut of 0.5 percentagage points by the end of March. "The next cut is the silver bullet," he said. "The German Bundesbank wants to wait to see if the economy needs it - it does."

Holger Fahrinkrug, economist at UBS in Frankfurt, expects a rate cut by April. He said the Bundesbank was looking closely at long-term rates, which have remained at above 6 per cent. "The Bundesbank will only cut if the bond market appreciates," he said. However, bunds fell on the day, with the benchmark 10-year bond ending on a yield of 6.08 per cent.

The headline jobless total rose by 368,000 to 4,159,000, with the Federal Labour Office attributing much of the increase to cold weather. However, after adjusting for seasonal effects, the unemployment rate rose to a record 10 per cent of the labour force.